Planning for Diminished Financial Capacity

Financial Advisor Financial Planning October 15, 2016 Author: Woody Derricks

Planning for Diminished Financial Capacity

Content from September 2016 Newsletter

According to the SEC, “‘Diminished financial capacity’ is a term used to describe a decline in a person’s ability to manage money and financial assets to serve his or her best interests, including the inability to understand the consequences of investment decisions.”1

Of all the things we plan for, it’s likely that we’re least interested in and least likely to plan for diminished capacity.  The thought of losing one’s mental capacity is, for some, a fate worse than death, but, it’s something that shouldn’t be ignored. According to the World Health Organization, a new case of dementia is diagnosed at an average of 1 new case every 4 seconds.2 As a result of this, everyone should take steps to organize and prepare their financial records and documents in the event that someone needs to provide support.

Because we’re so fearful of having a diminished capacity, we might be fearful of telling others when we notice changes in ourselves.  Don’t be.  Things won’t get better by hiding them from your loved ones.

Here are some steps you can take to prepare your finances in the event you need someone’s help:

Get organized– Pull together all of your financial documents in one place.  It might be best to provide your attorney with a list of accounts as well.  These documents will include:

  • Paychecks
  • Pension Statements
  • Social Security Statements
  • Mortgage & Other Liabilities
  • Investments
  • Checking/Savings/CDs
  • Insurance (health, life, long-term care, homeowners, etc)
  • Estate Plan
  • Names, addresses, and phone numbers of your CPA, Attorney, and Financial Advisor.

Communicate– Let your spouse and/or children know where your financial documents are stored and who your CPA, attorney, and financial advisor are.  You may want to have your spouse/children be involved in your appointments or receive duplicate statements so that they’re familiar with your financial picture.  Involving your family will also help them monitor your accounts for unusual activity.  Additionally, let your financial professionals know who your primary, trusted family/friends are.

Create a financial durable power of attorney– this will allow someone to step in and help you with your finances should you find yourself unable to do so (this could be due to a health issue or even if you’re out of the country and need emergency funds).  If you have a power of attorney document, you may want to get that on file with your financial institutions.

Many of these are wise pieces to put in place whether there’s diminished capacity, another health emergency, or as part of your estate plan. A little extra work for you today could save someone else countless hours of effort later.

Anyone who has assisted with the finances for a grandparent, parent, or spouse as they transitioned to a nursing home or after they passed away understands how difficult it can be to track down accounts, bills, and assets for someone else.  Some people are literally pulling up floorboards checking to see if grandma stashed her extra cash there for safekeeping.

Contact us if you’d like to learn more about how to prepare for diminished capacity or the warning signs.


The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

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